‘Culmination’ of factors sees Australian housing market ‘lose steam’

Higher mortgage rates, affordability barriers and tighter lending criteria are biting and, as a result, the Australian housing market is “losing steam”, CoreLogic has reported.

In its July Hedonic Home Value Index released on 1 August, CoreLogic noted that the quarterly trend rate of growth “has clearly reduced”, with quarterly capital gains across the combined capital cities falling from 3.6 per cent in February 2017 to 2.2 per cent at the end of July.

CoreLogic added: “The slowdown in growth conditions is most evident across the hottest markets, with the quarterly growth trend reducing from 5.0 per cent in Sydney earlier this year to 2.2 per cent at the end of last month. Melbourne growth conditions have also slowed, though to a lesser extent, with growth easing from a 2017 quarterly peak of 5.5 per cent to 4.2 per cent.”

Tim Lawless, CoreLogic head of research, said that disincentives to purchase interest-only loans would likely turn off potential buyers, but added that this was just one dynamic in the market slowdown.

“I don’t think there is any one factor causing the market to lose steam," Mr Lawless said. "Rather, it is the culmination of several factors working together.”

He added: “Higher mortgage rates and tighter credit policies have dented investor appetite. This is clear from the RBA’s monthly credit aggregates, which show investment-related housing credit growth has consistently slowed from late last year.”

Breaking it down

In the three months to July, Canberra saw a growth in dwelling values of 4.9 per cent, thus positioning itself as the best performing capital city, while Darwin sat at the other end of the spectrum with dwelling values falling by 6.8 per cent.

Sydney was revealed as the most expensive city, with a median dwelling price of $856,000, and Hobart was marked as the most affordable, with a median dwelling price of $338,000.

However, Mr Lawless added: “It’s still too early to measure the effect of first home buyer incentives, which went live on July 1st. However, historically, the first time buyer segment has been very responsive to stimulus measures.”

Melbourne was observed to be the strongest performer month-on-month, marking a 3.1 per cent gain in dwelling value, compared to the average 1.5 per cent lift across the combined capital cities.

“Melbourne appears to be benefiting from consistently high population growth, which is creating strong demand for housing, as well as consistently high jobs growth and more affordable housing options relative to Sydney,” Mr Lawless said.